Invensys without the rail business

Invensys presented their “End of Year” results in a press conference this morning. Yes, financial results like you might expect, ie pretty much the same as last year, but what else came out of the presentation, describing their new business outlook? I present my impressions.

The change of emphasis was of interest. Invensys is now without the Rail business: no comment was made about the possible use of the Triconex type safety systems in railway systems, which I seem to remember was a feature last year.

The Group last year had three divisions, and a divisional structure. Mike Caliel came back to Invensys as a divisional ceo, in charge of IOM. Now the group, or the company called Invensys, has three lines of business, sorry, four lines of business, but there is no “Divisional” structure, because that produced divisional overheads. These overheads need to be seen to have been cut out. Mike Caliel is now absorbed into the Invensys HQ staff. What happened to Chris Lyden then?

Wayne Edmunds, ceo, says that everyone gets a facelift from this – although 500 divisional staff jobs will go, out of the 1000 staff reduction.

Four LOBs

The “Lines of Business” are Software, Industrial Automation, Energy Controls, and Appliances. Software is the apparent favoured segment, getting the acquisitions, investment, etc, because of 10% pa growth rate potential and mid 20% margin that should be achievable. This business is “quite unique”, apparently.

Industrial Automation (IA) has growth in single digits, with a margin in the high single digits, growing to low teens. How have the mighty fallen, was it just last year Wayne enthused about how hardware manufacturing produced the real value for any business?

Eurotherm

Maybe pensioned off into the single digit growth, mid teens margin segment of Energy Controls. But what is wrong with that, with the remote monitoring potential of IMServ, that was, some years ago maybe, developing from the basis of the original SCADA developments, and has good potential now with cloud monitoring and control.

Investments

Yes, there are opportunities for investment. Wayne is focused on the Software segment at the moment, with the example quoted of Spiral Software, and with GBP600m to invest, previously quoted to be planned as multiple GBP50m investments over several years. So he is recruiting an M+A expert, a veteran and a name in the M+A business. Why, when his managers already know their customer’s business, the one they are in? Let’s hope the new veteran understands software, but the role could just be that of a scapegoat, to be sacrificed, rather than Wayne, when the first acquisition goes wrong. A good job for a couple of years, I could try to do that.

In IA the intention is to invest in the existing portfolio, rather than acquisitions. So no new widgets. But an interesting comment from Wayne came out of a question from Barclays: “Mike and his team have been investing in a new line of DCS and safety systems with a far more flattering cost profile”, as part of a cost reduction effort on the present line. Cost reduction is an area for investment in IA.

Next steps

The next press interface is the capital markets day on June 5th. Wayne suggested that Invensys had some ways to go in how they communicate with the market, presumably meaning analysts, and had the intention to strip away the complexity in their statements and make a much more straightforward interface. Maybe the market was expecting more, but it took a slight dip in the day of the 0900 presentation.

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